Thursday 25 April 2019

Jury still out on whether Netflix works as a business model

The second series of 'House of Cards' debuts next week, but can the streaming service keep up with subscribers' insatiable demands? Ed Power reports.

House of Cards: Kevin Spacey and Robin Wright in Netflix’s biggest hit
House of Cards: Kevin Spacey and Robin Wright in Netflix’s biggest hit
Amber: Lauryn Canny in the show

Ed Power

With the second season of Netflix's acclaimed political drama House of Cards debuting next Friday, there has been much chatter about the streaming service's impact on the way we watch television and movies. Unquestionably, House of Cards – starring Kevin Spacey as a two-faced politician ruthlessly pursuing power – is classy fare: gorgeously shot, with Hollywood-calibre acting and a script that swerves and weaves in a manner even those with super-short attention spans (which, let's face, it is most of us nowadays) will find difficult to resist.

But is talk of a Netflix 'revolution' overstating the case? Subscribers will probably have conflicting feelings. It is possible to adore House of Cards, to be counting the seconds until its return and yet experience misgivings about Netflix itself. For Irish subscribers, especially, the value of the €6.99 monthly subscription may seem up for debate. Without doubt, the service contains lots of worthy viewing. However, who could deny that there are endless acres of dross too? Netflix is a great idea – but is it a good implementation?

It depends who you ask. The Atlantic Monthly recently ran a lengthy piece detailing the numerical models Netflix uses to calculate the movies and shows subscribers want to see. It turns out Netflix divides its collection into nearly 80,000 categories, many verging on the self-parodying ('violent suspenseful action and adventure from the 1980s', 'time travel movies starring William Hartnell').

Commentators have hailed the Atlantic's findings as evidence of just how far ahead of the analytic curve Netflix is. Others see the algorithms as a clever way of concealing the fact that Netflix just doesn't provide that much compelling content (this is a good point at which to note that, owing to the vagaries of movie and TV licensing, the Irish service has a significantly narrower choice than that in the US).

"Netflix's big problem, it seems to me, is that it can't afford the content that its subscribers most want to watch," Reuters business columnist Felix Salmon argued in a recent article. "So Netflix has been forced to attempt a distant second-best: scouring its own limited library for the films it thinks you'll like, rather than simply looking for the specific movies which it knows (because you told it) that you definitely want to watch."

Ask TV producers for their opinions on Netflix and the response is often a shrug of the shoulders. Protective of its data, Netflix tends not to share viewership figures with the people who made the TV programme in the first place. They are paid for licensing the product but have no idea how popular it is. This was the experience of filmmaker Paul Duane, whose controversial missing teenager series Amber has been available on Netflix USA since last year.

"Our interaction with Netflix has been straightforward and minimal," he says. "Programme makers and producers don't get access to Netflix's info on viewer figures, unlike what happens when a broadcaster screens a show. This makes things a bit opaque. Producers would, I think, like more clarity from Netflix on viewing figures and other stats, but there's no real incentive for them to share their info."

Duane hasn't seen House of Cards but is a fan of Netflix's other high-profile original show, women's prison drama Orange Is The New Black. "Whether Netflix is a paradigm shift on the scale of, say, the arrival of (Sopranos network) Home Box Office ... well, that question is as yet unanswered.

"In theory, their intense scrutiny of viewer habits might render them better able to commission hits than conventional broadcasters. In practice, it's very difficult to assess that with such a small amount of original Netflix programming available for viewing."

Some observers are gloomier. There has been much coverage in the US of the less than hopeful sentiments expressed by financial analyst Michael Pachter, who points out that Netflix doesn't actually own its most acclaimed properties, such as House of Cards – it merely has licensed 'first streaming rights'.

Given that House of Cards alone has cost Netflix $100m (€75m) to date in production costs, some wonder about the long-term prudence of the business model.

"Unlike HBO, which owns Sopranos, when Netflix decides they want to show these shows again in three or four years, Netflix has to pay again, HBO doesn't," Pachter stated last year.

For all the negativity, it is telling that Netflix founder and chief executive Reed Hastings remains bullish about the company's direction. Then, why wouldn't he?

Netflix's market valuation surged to a record high in January and its subscriber base continues to grow. You or I may grumble about what we perceive as Netflix's limited selection, but with more than four million new subscribers signing up globally in the last quarter of 2013 alone, our quibbles are unlikely to be heard over the ringing of virtual cash tills.

Irish Independent

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